Will Fees for Carry On Bags Take Off?

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.

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If you're travelling on the cheap for business, you already know there are a lot of extra charges that can add up.

The charges may only grow, if you consider Spirit Airlines' success with charging for carry-on bags that need to go in the overhead compartment. The ultra-cheap airline, based in Florida, currently is the only airline to charge passengers for carry-ons (bags that fit under the seat are free).

The airline earned $50 million in fees from carry-on bags in its first year of charging for them, according to a report issued by airline consulting company IdeaWorks. The company launched the fee in August 2010. Nor did the charges–$30 in advance online and $40 at the gate–hurt Spirit's traffic. The airline flew 24.5 percent more passengers compared to the same period in 2009; this despite the criticism piled on the airline when it announced the fees. (Two members of Congress even threatened to tax all airline revenue generated by the fees, though no such tax has been adopted.)

Meanwhile, the airline reported a 10 to 12 percent profit margin in the nine months after the fee was added, a much higher margin than most of its larger competitors, according to the report.

“More than a year later, passenger traffic and revenue results have proven the skeptics wrong,” Jay Sorensen, president of Wisconsin-based IdeaWorks, wrote of the fees. A spokeswoman for Spirit declined to comment about the report. The airline is in an SEC-enforced quiet period for an unrelated matter.

The carry-on fee also has speeded up the boarding process, something that has slowed down on most airlines as all passengers try to avoid paying fees for checked luggage and thus spend minutes shoving bags into brimming overhead compartments.

"Flight attendants report passenger boarding and unloading occurs far more quickly," Sorensen said in the report. "This preserves Spirit’s desire to keep ground time at a minimum." An estimated 20 percent of Spirit's passengers pay the fee ($20 to $40, based on various factors, including membership in the carrier's $9 Fare Club) to use the overhead bins.